A central lesson drawn from the experience of the decades between the World Wars was that the economic and political fate of the world could not safely be entrusted to unregulated, free market national and global economic systems. History warned that this was a path to economic instability, global depression and political chaos. In the aftermath of World War II, national economies, even those in which markets played a very powerful role, would be placed under the ultimate control of governments, while international economic relations would be consciously managed by the International Monetary Fund (IMF) and World Bank. Trade was expected to rise in importance, but it was thought at the time that the degree of global financial integration would remain modest, with cross border money flows under tight government control. The global prosperity that characterized the quarter century following the war -- the “Golden Age” of modern capitalism -- reinforced belief in the wisdom of social regulation of economic affairs.

The economic instability that erupted in the 1970s as the structures of the Golden Age unraveled has led us back to the future. The troubles of that decade created a powerful movement, led by business and, especially, financial interests, to roll back the economic regulatory power of the state, replacing conscious societal control with the “invisible hand” of unregulated markets -- just as in the period preceding the Great Depression. Though governments still play a large role in most economies, they have ceded an enormous proportion of their economic power to global markets and private interests. The economic theory used to guide and justify this transformation is known as Neoliberalism. Neoliberal enthusiasts promised that this new laissez-faire era would dramatically improve economic performance in both developed and developing countries. Unfortunately, these promises have not been kept.

This essay begins with a brief overview of the standard arguments for and against global Neoliberalism and an overview of economic performance in the Neoliberal era. Section II argues that the micro theory appropriate to an analysis of the likely effects of global liberalization is not the neoclassical theory of perfectly competitive markets relied on by Neoliberal supporters, but Joseph Schumpeter’s theory of “natural oligopolies.” Section III presents a theory of the structural contradictions of global Neoliberalism that integrates a Keynesian-Marxian macro perspective with Schumpeterian and Marxian micro theory. The last section considers the political and policy implications of the analysis.